The disparate implications of various divergent SC judgments that have led to confusion in the applicability of the provisions of the Employees’ Provident Funds Act,1952 have made it essential to understand the issue, its implications and consequently reach a consensus on this dubious issue. The author makes an attempt at doing the same.
BACKGROUND: EMERGENCE OF “UNIVERSALITY TEST”
In the case of Bridge & Roof Company (India) Limited v. Union of India[“the Bridge and Roof Case”] the issue for consideration before the Supreme Court was whether “production bonus” is included under the definition of “basic wages” under Section 2(b) of the Employees’ Provident Funds Act. Section 2(b) of the Employees’ Provident Fund Act defines “basic wages” to include all emoluments earned by an employee whether on duty or on holiday, and specifically excludes food concessions, dearness allowance, overtime allowance, bonus commission/similar allowance payable and presents made by the employer. The definition of “basic wages” assumes importance as Section 6 of the Employees’ Provident Fund Act provides for contribution to be made by employers and employees as a percentage of these basic wages, dearness allowance, and end retaining allowance for the time being payable. Whether a particular emolument is within the definition of basic wages thus determines the extent of contribution, making it an extremely contentious issue. The Petitioner Company, in addition to basic wages and dearness allowance, had two production bonus schemes, as per which, production bonus would be paid only if the output of the company was equivalent to or exceeded 5,000 tons per year. The scheme applicable to the hourly workers can be distinguished from the scheme for other staff, as for hourly workers, production bonus was to be granted if output of the company exceeds 1300 tons in a particular quarter. The Central Government by a direction established that production bonus falls within the definition of basic wages, and the Company was directed to make contributions accordingly. The Petitioner Company approached the Supreme Court under this directive of the Government on the grounds that the legislative intent was to exclude bonuses of all kinds from the ambit of Section 6 of the Employees’ Provident Fund Act. It was also the contention of the Petitioner Company that by included production bonus within basic wages, Article 14 of the Constitution would be violated, as industries that grant bonus would inevitably have to make larger contributions to the provident fund in comparison to industries that do not grant bonus, which amounts to discrimination without intelligible differentia.
The Supreme Court, in assessing the rival contentions of the parties, came to the conclusion that while Section 2(b) contains certain exemptions to be excluded from the definition of basic wages, there is no logical pattern or underlying reasoning which justifies all the exemptions. The Court then observed that the distinguishing factor between the exceptions and inclusions under Section 2(b) was that all amounts payable to all permanent employees to all concerns would be included, but whatever is not payable by all concerns or earned by all employees would be excluded. Based on this deduction, the Court held that all kinds of bonus would be excluded, in the same manner as house rent allowance or overtime allowance, as bonus may not be payable in all industries and to all employees. This decision of the Supreme Court has been known to lay down the “universality test” applicable to contributions under the Employees’ Provident Fund Act.
THE UNIVERSALITY TEST – WATERED DOWN?
The principles of the Bridge and Roof Case have been reiterated in the case of Manipal Academy of Higher Education v. Provident Fund Commissioner. Similarly, the cases of Muir Mills Co. Ltd. Kanpur v. Its Workmen and Kichha Sugar Co Limited v. Tarai Chini Mill Majdoor Union Uttarakhand also followed the Bridge and Roof decision.
However, the position on calculation of provident fund contributions changed substantially with the case of Regional Provident Fund Commissioner (II) West Bengal v. Vivekananda Vidyamandir and Others. [“Vivekananda”] In this case, several appeals were being heard together. One of the appeals concerned a school which was giving special allowance as an incentive to its teaching and non-teaching staff, and the relevant authority under the Employees Provident Fund Act held that this incentive-based allowance was to be included within the definition of “basic wages”. When deciding the petition, Justices Navin Sinha and Arun Mishra observed that no evidence had been placed on record to demonstrate that the allowances in question were not paid across the board to all employees in a particular category. The Bench then went on to hold that the amounts payable form part of basic wages for the purposes of Section 2(b) of the Employees Provident Fund Act. A review petition was filed against this decision by the Management of Surya Roshni Limited, which was promptly dismissed.
Many practitioners have described the judgment of the Supreme Court as a “welcome clarification” to prevent the perpetuation of the ambiguities that have prevailed in determining the scope of “basic wages” under the Employees Provident Fund Act. However, at the same time, it can be argued that the Vivekananda case has modified the universality test laid down in the Bridge and Roof Case. The modification can be seen when examining the findings of the Supreme Court in each case. In the Bridge and Roof Case, the expression used is “whatever is earned by all permanent employees”, while in the Vivekananda case, the expression used is “allowanced paid to all employees in a particular category”. If a literal interpretation is given to the ruling in the Vivekananda case, it gives rise to a possibility that if allowances are payable to all hourly wage earners, then even if they are not payable to all permanent employees, such allowances could fall within the ambit of ‘basic wages’ and therefore Section 6 of the Employees Provident Fund Act. It can be argued therefore that the test does not remain one of absolute ‘universality’, but once of ‘universality within a particular class’. Yet another school of thought has emerged on this subject, as per which, the test in the Bridge & Roof Case is merely obiter, whereas the Vivekananda case is the true test which currently occupies the field.
This potential dissimilarity in two tests applied by the two different benches of the Supreme Court can have the effect of perpetuating confusion amongst industries subjected to the provisions of the Employees Provident Fund Act. To resolve the controversy, the matter ought to be referred to a higher bench in order to ultimately settle the matter.
Footnotes:  Bride & Roof Co. (India) Limited v. Union of India, 1963 AIR 1474.  Manipal Academy of Higher Education v. Provident Fund Commissioner (2008) 5 SCC 428  Muir Mills Co. Ltd. Kanpur v. Its Workmen, AIR 1960 SC 985  Kichha Sugar Co Limited v. Tarai Chini Mill Majdoor Union Uttarakhand (2014) 4 SCC 37  Regional Provident Fund Commissioner (II) West Bengal v. Vivekananda Vidyamandir and Others, Civil Appeal No. 6221 of 2011.  Khaitan & Co, Supreme Court on Employees’ Provident Fund Contributions, available at, https://www.khaitanco.com/thought-leadership/supreme-court-on-employees-provident-fund-contributions-universality-is-the-test-to-consider-allowances-as-basic-wages.
4th Year, B.A.LL.B.,
National Law University, Jodhpur.
(Images used for representational purpose only.)